Will revamped Zara give affordable luxury a run for its money?

A belted leather coat? $699. A double-faced leather coat with fleece? Make that $869. These jackets aren’t from Michael Kors or Coach, but from Zara, the Spanish fast fashion company primarily known for its low prices and rapid production process. Though just a fraction of the price of luxury brands, Zara’s increasingly expensive offerings have sparked online conversation and global headlines over the past year. “Is this still the same affordable Zara that I've been wearing since college?” writes Chinese netizen @snail on Xiaohongshu. “The most expensive items are now priced at 5,000 RMB ($700) each, and even a past-season silk dress costs 2,000 RMB ($280). It seems like they’re venturing into the realm of affordable luxury.” With the global market saturated with fast fashion options and consumer preferences shifting toward quiet luxury, Zara appears to have taken note. The flagship brand of Inditex has subtly repositioned itself, presenting a more upscale image to attract those with greater purchasing power and keep up with the evolving trends. Launching premium collections in China And nowhere is Zara’s premiumization strategy more apparent than in China. In November 2023, the high-street brand hosted a pop-up on Wukang Road, Shanghai, to unveil its latest collaboration with London-based Studio Nicholson. Chinese KOLs attended the event dressed in minimalist wool coats, blazers, and slacks from the collection, exuding sophistication and class. By partnering with a brand known for its quality fabrics and higher price points (Studio Nicholson’s bestselling trench coat retails for $1,200), Zara distances itself from traditional perceptions of fast fashion while continuing to offer affordable pieces. “This strategy attracts consumers seeking affordable luxury, blending style, quality, and versatility in pieces like those from Studio Nicholson, which aim to provide an accessible modular wardrobe foundation,” says Sophie Coulon, managing director at digital consultancy VO2 Asia Pacific. “Moreover, targeting new demographics interested in premium but affordable options allows Zara to expand into new markets.” In addition to global collaborations, local partnerships have also been key to Zara’s image revamp. Since 2022, the Inditex brand has teamed up with emerging Chinese designers like Susan Fang, Calvin Luo, and, most recently, Xi Xing Le to inject fresh creativity into its designs and create deeper inroads in the Chinese market. On Xiaohongshu, the Zara x Xi Xing Li 2024 Chinese New Year collection has been commended for tastefully incorporating Chinese mythological elements. “Finally, there is a Year of the Dragon edition that suits young people’s aesthetics,” writes Xiaohongshu user Chenshiliu16Chen (@陈石榴16Chen). “After seeing so many Year of the Dragon limited editions, I still feel that Chinese designers can capture the essence [of the festival] while innovating just right.” Cultivating a sophisticated online image Even Zara’s e-commerce efforts have become more upscale. Just look at its new livestream concept on Douyin, launched last November. Every week, the brand runs a five-hour broadcast from a set in Shanghai with a team of more than 75 members. The debut livestream, which featured catwalks, walkthroughs of the fitting rooms, and “behind-the-scenes” views of the camera equipment and staff, garnered nearly 1.22 million views, generated over 250,000 RMB ($35,054) in sales, and won praise from Chinese netizens for its refined approach. “It’s not just about having a digital presence but [offering] seamless, omnichannel journey that mirrors the premiumness of a brand across all touchpoints,” Coulon says. “In markets like China, where digital engagement, especially through short videos and livestreams, forms an integral part of daily life, the stakes are even higher.” Douyin is proving particularly vital in influencing brand perception and driving sales in China. In the first quarter of 2023, Douyin surpassed Tmall in sales in the clothing, and bags and accessories categories. In an increasingly digital retail landscape, a dynamic online presence is essential for brands to remain attractive and memorable, Coulon says. In conversation, not competition, with affordable luxury Zara isn’t the only high-street label eyeing on the premium sector. H&M Group-owned Cos has launched a limited-edition occasionwear line, Cos Atelier, described as being “founded on the principles of luxury and exceptional design.” Meanwhile, Spanish retailer Mango has launched a special collection called Capsule, featuring dresses and jumpsuits for formal occasions. However, these brands are not necessarily aiming to directly compete with affordable luxury brands like Michael Kors, says Aurelien Rigart, co-founder of IT Consultis, a digital transformation consultancy in China and APAC. “Their primary goal lies in increasing their Average Unit Retail (AUR) and Average Value per Transaction (AVT) among their existing loyal customer base,” Rigart tells Jing Daily. “Rather than focusing solely on capturing a share of the affordable luxury market, Zara and Cos seek to leverage their extensive customer pools, brand visibility, and accessibility to drive growth in the premium segment.” By offering premium-priced items like a $699 leather coat, Zara also aligns itself with the quiet luxury trend that is driving sales for brands such as Zegna and Brunello Cucinelli. “By emulating this strategy at a more accessible price point, Zara and Cos can cater to discerning consumers seeking understated luxury without the exorbitant price tag associated with traditional luxury brands,” Rigart adds. $699? In this economy? Zara has always been known for offering affordable alternatives to pricier retailers. And it’s a strategy that’s paying off in light of macroeconomic difficulties: In the fiscal year 2023, parent company Inditex reported record-high sales and net income. The outlook for 2024 is equally promising, with sales from February 1 to March 11 up 11 percent in constant currency compared to the same period last year. According to Rigart, Zara’s decision to release high-end items in the Chinese market is wise as consumers become more discerning. “As the brand couldn’t improve brand desirability during hard times [referring to the pandemic], elevating the brand image now is crucial for sustained growth and competitiveness,” he says, emphasizing the importance of brand image for increasing AVT. However, the success of this strategy hinges on several factors. “If Zara’s premium offerings fail to deliver perceived value commensurate with their higher price tags, consumers may perceive them as overpriced and opt for competing brands with superior perceived value,” he points out. Plus, there’s the issue of sustainability — a blot on the reputation of all fast fashion companies. Rigart advises that Zara’s premiumization strategy should align with its increasing commitment to sustainability to resonate with environmentally conscious Chinese consumers. Price-conscious consumers still value high-quality products and exceptional brand interactions, even if they entail a higher cost. In a sea of cheap options, moving upstream is one way for fast fashion brands to stay afloat in China. It’s a lesson taken straight from luxury’s playbook.

Will revamped Zara give affordable luxury a run for its money?

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Published March 25, 2024

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Will revamped Zara give affordable luxury a run for its money?